Analyst Anastasia Golovach predicts how the currency rate is going to fluctuate for the rest of the year.
Where is the hryvnia going? Renaissance Capital is sticking to its forecast of a national currency that fluctuates between Hr 9.0-9.5/$1, with an average rate of Hr 8.7/$1 for the year. It may even end the year at a stronger Hr 8.3/$1.
Why do we predict this? We think retail demand for dollars may decline soon, even without National Bank of Ukraine intervention to prop up the currency. People are likely to stop buying hard currency when the exchange rate reaches Hr 9.0-9.5/$1 because, historically, the hryvnia has not dropped below this level. Therefore, there is no perceived investment opportunity for households in purchasing hard currency at these levels.
Our scenario, however, also doesn’t rule out a short-term panic that could cause the hryvnia to temporarily shoot up to Hr 12-13/$1.
High retail demand for dollars and external debt payments triggered the quick depreciation of recent weeks. The hryvnia is under pressure because of growing external debt obligations. It is estimated that the current account deficit will be about $7.6 billion in the next five months, bringing the annual figure to some $15.7 billion. In the first half of the year, hard currency outflows were compensated by currency interventions made by the National Bank of Ukraine. But in the second half of the year, the NBU’s ability to support the hryvnia has been curtailed a bit. It has been limited by the need to comply with net foreign reserve limits set by the International Monetary Fund in return for its $16.4 billion bailout package. We estimate that the NBU can spend about $850 million monthly to defend the hryvnia in the second half of 2009, compared to an average $1 billion per month it had in the first half.
The short-term hryvnia appreciation exhibited in May-June largely reflected administrative measures taken by the central bank, including forcing Ukrainian banks to sell surplus dollars on the market and steps to curb speculation. The NBU says that not all the banks honored the new rules. The NBU then retaliated hard against banks in violation, banning them from participating in currency auctions.
Anastasia Golovach is an analyst at the Kyiv offices of Renaissance Capital, an investment bank. She can be reached at [email protected].
